The Coming Economic Bust: Are You Prepared?
I HAD A BUDDY IN HIGH SCHOOL who’s favorite saying was, “You can take that to the bank.” I’m not sure why he always said it.
Perhaps his dad was a banker. Perhaps he heard it in a movie. I don’t know why. But I knew that when he said it, he was indicating certainty.
Today I’m borrowing a phrase when I tell you that the U.S. economy is headed for a bust and … Go ahead and finish the sentence—"You can take that to the bank.” Literally, this time around.
The issue isn’t whether we’re headed for the financial rocks, it’s only a matter of when we arrive. Smarter people than me are in the prediction business.
There’s all kinds of famous stories of people who made horribly wrong predictions concerning economic cycles. People who followed them did so at their own peril. Sadly, some who lost big actually perished by ending their own lives.
That is NEVER the answer.
But now back to the 2 questions in your mind. No, I’m not a guru or a mind-reader. But I don’t have to be a guru or a mind reader to know your questions.
The first question is: How can I know (with certainty) that the economy is headed for a bust?
Your second question is: If that’s true, what do I do about it?
First Question First
According to the National Bureau of Economic Research, since 1929 there have been 28 cycles of economic booms and busts in the U.S. economy.
The Boom Cycle is a period of economic prosperity: Low unemployment, wage growth, rising house prices and a robust stock market.
The Bust Cycle is the opposite: High unemployment, wage stagnation, as well as stagnating markets and housing prices. The average Boom Cycle is 38.5 months and the average Bust Cycle is only 18.5 months.
What does that tell us about our current economic situation? The last recession (The Great Recession) ended in June 2009. Since that time, we’ve seen unemployment plummet, housing prices rebound, and the stock market has been on fire, reaching historic levels.
This means that we’ve been in a Boom Cycle for more than a 100 months! That’s the longest Boom Cycle in modern economic history. But you already know what always follows a Boom Cycle: A Bust!
ARE YOU PREPARED FOR THE BUST?
This brings us to our second question: Are you prepared for the bust?
In the previous Bust Cycle (December 2007- June 2009) the economic fallout caught individuals and businesses alike, by storm. We saw the caving of 100-year companies like Lehman Brothers and all around us, friends and colleagues were being unemployed, foreclosed upon or both.
It was a mess!
This cycle will repeat. It’s just a matter of when. The “when” question is affected by many factors out of your control, like U.S. monetary policy. For example, if the money supply is increased, prices get driven up, which leads to speculation, which leads to “irrational exuberance” which leads to … BUST!
Knowing this cycle, what can you do as a business or an individual to prepare yourself?
1. Recognize the cycles. Rather than blow all your Boom Cycle gains, put away some of it for the inevitable Bust. Study the cycles to prepare yourself and your business.
2. Double Down during the Boom Cycle. Start a business, side hustle, part-time job or whatever you can invest in to create more cash. You’re going to need it in the Bust. Not just defensively, but offensively for opportunities that arise when everything is "on sale."
3. Have a plan. Creditors and lenders should review lending policies and stick with sound lending guidelines. Previous Bust Cycles were brought about, in part, by shoddy credit standards leading to shoddy investments. Leading to defaults and catastrophic losses.
DON'T BELIEVE THE HYPE ...
Borrowers and small businesses should also take precautions and avoid being caught up in the hype of what everyone else is doing. Keep debts low and cash accumulation high because assets are always over-priced in Booms and under-priced in Busts. But you need cash and good credit to exploit the opportunities.
Take a step back. Nothing lasts forever: Neither Boom nor Bust. But if you’re aware of the cycles, you can be calm while everyone else panics. You can prosper regardless of state of the economy.
Thanks for reading my post. I'm an attorney and Christian minister. I'm also a #keynote #speaker and an author. I write about how to know God's vision for your life so that you may fulfill your purpose.